Sellers all share the same notion as to the value of their house. When I ask what they would like to net from the sale of their property, they always answer: “as much as I can get.”
And generally, they believe that the best way to achieve that goal is to start high to test the waters, and then consider price reductions as time goes on without receiving any offers.
However, in today’s market, there is a strong possibility that electing to use this strategy will ultimately lose money for the seller. It’s called “chasing the market,” and in a declining market it is more like a dog chasing its own tail.
As houses languish on the market, savvy buyers sense more and more desperation on behalf of the seller. There is nothing about these listings that would make a buyer want to offer anything near the list price.
My preference is to ask a seller what the “least” amount they can live with right from the get-go. If that amount is close to the true market value that I have researched, we are in business.
A properly price house immediately attracts serious buyers during the initial “new listing” phase. And if a house generates multiple offers within the first week or two, the seller is actually in a much stronger negotiating position.
And here’s the kicker: Pricing a house lower can actually net the seller more money in less time! Let’s all repeat that: Pricing a house lower can actually net the seller more money.
And a better bottom line is the net result of a successful sale!
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Well said Richard. I sometimes feel like the sellers who have these thoughts think I'm trying to con them and "just get the house sold fast". To sell the home quickly usually means an attractive price. To over price just means, no sale, and very likely less money in the seller's pocket if a sale does close.
One fact that is so often lost on sellers is that buyers with their buyer's agents help has access to the same comps that the listing agent has.
Market is market. If folks seriously want/need to sell, they need to be in the middle to low end of their market.
High priced listings do not invite offers.
You are on the money Richard. Sometimes I think it's the agents that accept these listings that need to learn this lesson.
Richard:
My preference is to ask a seller what the "least" amount they can live with right from the get-go. If that amount is close to the true market value that I have researched, we are in business.
I use this same approach, it called allignment. Great Post
Stephen
Richard, not only do high priced listings not invite offers, but they also discourage showings; no lookers translates to no offers. The house has to be seen before it can be sold and serious buyers already know what the value price should be.
Richard, the start high strategy is a dead on arrival sales tactic, no initial brain activity can mean no way to revive later...except selling for far sell that owners ever envisioned.
One very effective way to get a home properly priced right from the start is to show the absorption rate to the sellers. If, for example, there is a 6 month supply of available homes, let them know that they can sell in the first month or the last month depending on price. Then figure out how much the monthly carrying costs on the home are. That number is usually the clincher for pricing the home properly.
Suggested this one for a feature Richard. Dangerous to ask a seller what they think the place is worth, what they want for pie in the sky sticker price.
It seems to me that it could help if the seller were to pay for an appraisal up front. Then they have something they can advertise, and they would probably be more comfortable accepting. It can also save them many thousands of dollars.
Richard,
Great Post. The right pricing strategy is very critical in today's market.
Thanks for sharing,
Matt Naumann
Hi Richard,
Your post shows wisdom from years of experience in real estate. Sellers (and some agents) have a hard time wrapping their minds around these concepts.
~Lisa
Richard, I struggle with this all the time. I am as direct as can be, lost a few listings to agents who listed much higher. And they will sit, and have sat. But that is ok because I really want listings that have a chance of selling! My time is valuable, I put a great deal of effort into marketing and if they house is overpriced I did it all for my own entertainment.
Great post!
Wanda...
It is true that some think we are out looking for an easy commission. But we know our goal is to get the house sold! Thanks for the comment.
Lenn...
I often talk to sellers about the techniques that I use with BUYERS! I tell them how we do a CMA, examine tax records and deeds, and make an informed offer. Good point, once a seller understands that you have the same information as a BUYER attitudes can change in a hurry! THX
Bill...
Listing that won't sell cost agents money! Now you and I both know that, I wonder why others don't? Thanks so much.
Stephen...
I don't think that I have ever heard the term "alignment" before. If I did, I forgot! lol and thanks for a term that I will add to my arsenal!
Richard - we try to tell them, but they are so afraid that we might be wrong. SO they usually go for the start high plan, which in the end costs them money.
Richard, A motivated seller will take the advice of their agent to get their home sold. The others will just be passed over time and again, some get it, some don't.
Nice blog Richard! The listing alarm bells start to sound when a potential client has a number stuck in their head. How do you arrive at that figure? This is what we need to pay off our Discover card!
Richard, Right on the money! You might add: put your sellers into the buyer's shoes and look at it from their perspective. Buyers aren't oblivious. Why would they want to offer on the high end of a range, when they know that over time the price will come down? Ask your sellers this question: If you were to sell your house for $x dollars (whatever the low end of the range is), Would it be better to sell it in the first month or the 6th month? YOu need to be having that price reduction conversation with them in the beginning, not after the house has been on the market for 6 to 12 months.
Actually Richard I like the post & one of my potential clients that came in to an open house asked me if an appraisal should be done to give them an unbiased selling price- i said go for it...it'll make my job far easier...
Richard...I hear it a lot, I will put the price high and look at offers. Some people will not offer what they think the property is worth if the list price is to high.
Surprised this post isn't featured yet. I'm suggesting it. And I may just print it out and take it with me on my next listing appointment. Point well made.
I am with Chris and I suggested this one too. Excellent information that our Seller's NEED to hear.
Richard - sometimes it is very hard to convince the seller that they should not be "testing" the market. And, while it seems to be an oxymoron, you are absolutely correct, Pricing a house lower can actually net the seller more money in less time!
Richard, we just can't make sellers understand this. Unfortunately, I have a listing right now that is priced too high. I didn't want to take it but it was a previous client, whose husband is out of the country and he left her to handle the sale. But he won't let her price it accordingly. The house has been on the market 2 months without 1 showing. I update her every week. Her response that's fine, just leave it priced as is. I keep telling her it's not going to sell at that price, but she won't listen. In the meantime, the listing makes me look bad because it's over-priced. Should I just drop them?
You make a very good point Richard. I think this is not always well understood by our colleagues and least by sellers. The best way to illustrate is the graph on page 147 in the book SHIFT which I have used with many clients. It demonstrates how a listing can end up chasing down the market and always end up being overpriced to the point you were making about pricing to sell.
For anyone who's interested I can re-blog with the graph. For some reason, I can't make it stick in this comment box.
As Brian Buffini says: when would like your house to sell?
Good afternoon Richard,
The market is the market and changes over time. It always is best in a market we are experiencing to list the home at a "compelling" price. If the goal is to sell there is lots of competition and you want to set your home apart from the rest of the pack! Compelling price and staged to sell!!
Richard you have hit the nail on the head and I think most serious agents understand that it is a waste of every ones time to price listings over market! I have willing sellers that don't want to chase the market either so now the challenge is how to hit that sweet spot and not go too low!
Another good question to ask the seller is "what are your carrying costs"? Can the seller really afford to start high and have the property sit on the market for months and months. Often times when they substract their carrying costs from their higher sales price they find that they really aren't getting the net they thought they were. This is a good way to show them...in terms they can understand (dollars) that it's just better to start at the lower price and get it sold.
excellent post...if only they would all listen!
great post
Jerry Bresser teaches that very concept
how would you like to get more than people are currently getting?
I love comment #1. Sellers do think that you've underpriced it if they get an offer too quickly, but if we get it sold in a quick, reasonable amount of time, then isn't that our job? I hate it when a seller says, "Let's try..." this price.
How True! I seem to have more of these coversations than I like.
I write market statistic posts all the time. Ususally, my last sentence is something like, "Pricing your house lower (correctly) will net you more money than overpricing." We're on the same page - common sense!
Pricing the house right on fair market would be the best positioning for me. High pricing would drag the marketing time. On the other hand, low pricing will be unhealthy for the market as well, as your listing will be used for BPO comps, and your listing could push values lower. Middle ground is safest!
Jane Pacheco
Wish this could be required reading for every potential seller!!! I like to also show them the info in our cma report format where you can track days on the market til sold along with what percent of list price did it sell for. That also makes it clear that magically the biggest gap in sales price to asking price runs right along with the longest market times. So sellers lose both time & money if they "test the market".
Great post Richard. Its funny how much we have to fight with our sellers to make them realize these points are in their best interests. I just wish some of them would get it up front and save some time.
What you've written should be printed on parchment and handed out at listing appointments like scripture! I've experienced this many times and yet sellers don't learn.
Great post, Richard! This is not a "test the waters" market; if sellers truly want/need to sell they have to price at or below market value, in order to move on.
We're stuck in the middle between the sellers who want way MORE than a house is worth and buyers who want to pay way LESS than a house is worth. Our only option is to educate them, and we all know that not everyone can be educated. Unfortunately, there's always someone out there that will shoot that stupidly low offer at homes and take the rediculously overpriced listing. Not me.
Richard - Ego is done. Price it to sell at the onset . may the best priced home win
It always amazes me when sellers say they want to move on to other things in their lives but still want to "try" a higher price than the data suggests.
Buyers are definitely more savvy than ever and they KNOW the market! Over priced listings do not even get shown, let alone offers. You are absolutely right that well priced homes sell quickly and often for more money with multiple offers. Great post.
This is so true. A Seller can follow the market down like a slinky going down a set of stairs and thereby net way less over the long run. Or a seller can set a competitive and realistic price up front and sell in the first 30 days when the Seller's chances are best. More now or less later..it is a choice.
YES YES YES!
I share this information with my Sellers all the time, at listing appointments and for price reductions.
Great post!
-- Danny
Richard,
Indeed, indeed. I love it when a seller listens to this the first time. It makes me cringe when they don't.
Richard: I love that word "Languish", perfect word describing a home that has been on the market longer then it should!
Richard … and pricing high hurts the sellers … and generally happens with an agent who buys the listing by agreeing with the sellers. It’s unfortunate … but it happens.
Richard - so, so true. It's a harsh reality for some sellers to learn this, but it is our job to educate them up front. If we are truly honest with them and they listen to us, they will net more money than if we buy the listing. Well said.
An Over-Priced Listing will become "Shop Worn". Buyers won't touch it.
The longer a home sits on the market, the harder it is to sell. I agree, lower may result in more.
They can chase the market all the way to the bottom. It is important to have the market chasing you.
You can usually determine who the "day trader" home sellers are. They have a stack of real estate sections from the local newspaper on the bathroom counter next to the toilet. They lace their conversations with metaphors citing the latest home-sales statistics. They constantly peek out the window to see how many people are standing outside looking at their house.
Thank you Richard! Great information, well-stated. Do you mind if I re-post this on my outside blog?
Pricing below market is a great idea and has been working here in San Diego...as long as sellers agree. I think it helps if you can show them the last listing you sold that went above list price.
Hi Richard... Great (amd very "on target") observations about the problems with overpricing. It simply does not accomplish the desired end result that many sellers believe that it does.
Well said Richard. Getting as close to that true market value as possible is key!
I have had much success with sellers who have a realistic understanding of their home's value. The homes generate excitement from the start and the offers come quickly. Going this route, a recent listing sold above list price.